Empirical Research of Direct Investment in Countries along the "Belt
and Road" based on Gravitational Models
Wen Qu and Haimin Wang
Department of Management, City College of Xi an Jiaotong University, Shang ji road, Xi an, Shaanxi, China
Keywords: Countries Along The " Belt and Road", Foreign Direct Investment, Influencing Factors, Gravitational Models.
Abstract: The " Belt and Road" construction has opened a new page in the world development process. Countries along
ASEAN have become the first choice of China's foreign investment (OFDI) especially because of their
industrial structure and location advantages. In this paper, we empirically analyze the influencing factors of
China on OFDI in ASEAN countries by building gravitational models and selecting the data from 2012-2019
through CSMAR, aiming at testing the hypotheses. The analysis results show that the market size of the host
country, macroeconomic risks, financial development level, trade freedom, labor costs, the distance between
China and the host country and the original investment cooperation are the main influencing factors. On this
basis, the relevant suggestions are put forward in order to further promote the "going global" strategy and
encourage more local enterprises to actively participate in OFDI activities.
Relevant statistics show that in 2019, China's net
OFDI was $136.91 billion, and the total net OFDI
reached $2198.888 billion, which was particularly
impressive in ten ASEAN countries. In the case of
declining overall investment, at the end of 2019,
China's direct investment stock in countries along the
"Belt and Road" was $179.47 billion, accounting for
8.2% of China's foreign direct investment stock.
There is no doubt that from Thailand's "eastern
economic corridor", to Vietnam's "two corridors", to
Indonesia's "global ocean fulcrum", aims to build
political mutual trust, economic integration, cultural
inclusive community "Belt and Road" community
"initiative" circle " bigger, dividends in ASEAN
countries, the ASEAN connectivity overall plan 2025
through shows China's confidence in ASEAN
countries OFDI. Based on this, we can not help but
ask, what factors have restricted China's foreign
investment? What is China's investment preference
for OFDI in ASEAN countries?
The source is the 2019 China Foreign Direct Investment
On the study of OFDI, the theoretical community has
formed a relatively rich results. Among them,
investment development level theory of Dunning
(Dunning, 1988); small-scale production technology
theory of Wells (Wells, 1972); technical localization
theory of Rao (Lall, 1983) target developing
countries and analyze the advantages of foreign
investment of developing countries. There are
relatively few theories of OFDI in China, and more
hypothetical arguments are based on empirical testing
on the basis of learning from foreign mature theories.
Through the collation of the literature, it can be
concluded that the academic research on OFDI
mainly focuses on the investment impact factors in
the host country. Among them, market size, bilateral
trade, labor costs, resource endowment,
infrastructure, technical level and political
environment are the main concentration points of
research. Xiang Benwu (Xiang, 2009) used the
generalized distance estimation of GMM to draw the
research conclusion of a significant and negative
correlation between the host country market size and
foreign investment; Wang Juan and Fang Liangjing
(Wang, 2011)found that through measurement and
Statistical Bulletin.
Qu, W. and Wang, H.
Empirical Research of Direct Investment in Countries along the "Belt and Road" based on Gravitational Models.
DOI: 10.5220/0011174500003440
In Proceedings of the International Conference on Big Data Economy and Digital Management (BDEDM 2022), pages 296-300
ISBN: 978-989-758-593-7
2022 by SCITEPRESS Science and Technology Publications, Lda. All rights reserved
analysis, Chinese enterprises tend to invest in
countries and regions with close exchanges with
China and low political risk; Song Weijia (Song,
2008) through the panel data research believes that
China's investment scale is significantly related to the
oil reserves of the host countries, It is the decisive
factor in the location selection of foreign direct
investment; Jiang Guanhong (Jiang, 2012)found that
China has the incentive for technology export to
invest in developing countries, Investment in
developed countries has an incentive to seek strategic
At present, the research involving investment in
countries along the "Belt and Road" mainly focuses
on avoiding investment risks and deepening
investment strategies, and the number of empirical
studies is not large. On Zhou wuqi (Zhou, 2015), by
analyzing the investment pattern of the Belt and
Road, it was noted that deepening cooperation with
countries is an important measure to promote the Belt
and Road of the initiative; Zhang Yabin (Zhang,
2021) analyzed and evaluated the convenience of
investment in the countries along the route through
the construction of investment facilitation index
evaluation system. Meng Mingqiang (Meng, 2016)
showed that our investment in host countries was
mainly affected by its infrastructure construction and
trade policies and tariff rates.
3.1 Data Source and Sample Selection
The OFDI stock data of China to ASEAN countries
used in this article are from the China Foreign Direct
Investment Bulletin, and the rest of the data are from
World Bank statistics. All the data were processed by
factor analysis and regression using SPSS software,
spanning 2012 2019.For some missing data using
the "linear Trends at Points" function in the software.
3.2 Variable Setting
Based on the previous research results, the following
seven variables were selected based on the data
availability for subsequent empirical studies, and
each variable is explained in Table 1:
Table 1: Variable description.
Empirical Research of Direct Investment in Countries along the "Belt and Road" based on Gravitational Models
Table 2: Correlations.
Table 3: Coefficientsa*.
3.3 Conclusion of Regression Analysis
Gravitational models have been widely used in the
investment sector since Dutch economist Tinbergen
introduced their models into trade. Considering that
the initial gravity model contained only the two
elements of the market size and geographical distance
between the two countries, which was not enough to
cover other factors affecting the investment
transactions between countries, the model gradually
evolved to form an extended gravitational model. In
general, the extended gravitational model is
expressed as:
represents the investment stock between
the two countries, X
indicates the factors
affecting investment decisions in the host countries.
Denote the random perturbation term.
According to the assumptions of the previous part
of the theoretical analysis, IR, ND, TF, LC, DIS, and
OFDI, will be selected as factors affecting external
investment activities. Considering the quantitative
index of macroeconomic risk the inflation rate is
based on the GDP flattening index, and the reaction
host market scale GDP repeat, in order to avoid
serious factors between the col-linear influence, in
the subsequent regression analysis excluding the host
macroeconomic risk this factor, finally choose host
market size, financial development level, trade
freedom, labor cost, the distance between China and
host and the original investment cooperation six
influencing factors, build the following regression
BDEDM 2022 - The International Conference on Big Data Economy and Digital Management
represents the investment stock between
the two countries,
Denote the random perturbation
term. Since the specific values of the variables in the
above model differ greatly in orders of magnitude,
log treatment on both sides of the equation to
eliminate the effect of hetero variance on the test
results. At the same time, considering the actual
operation, the enterprise always takes the import and
export amount of the above one year as the basis of
the investment decision of the current year, so the
variable of trade freedom in the model lags behind the
value of the first phase of the same group data, that
is, the import and export trade volume of the previous
period. Relevant data analysis software is concluded
as above:
From Table 2, There is a significant positive
correlation between OFDI and GDP, NDC and TF.
That is, a country's direct foreign investment decision
is affected by the host country's market size, financial
development level and trade freedom. The larger the
market scale of the host country, the higher the level
of financial development, and the more free the trade
environment, and the easier it is to attract the inflow
of foreign capital. Further linear regression on the
influencing factors, overall the equation was adjusted
for R
At 0.744 and an F value of 47.574, it proves that
the variables selected in the extended gravity model
strongly explain the dependent variables. Therefore,
the host country market size, financial development
level, trade freedom, labor cost, and the distance
between China and the host country can largely
explain China's investment choice preference for
ASEAN countries along the "Belt and Road" For the
individual variables in Table 3 alone, the coefficient
symbols obtained after regression are basically
consistent with the above expectations. The
coefficient of the LnTF was 3.681, the degree of
interpretation of the LnOFDI was extremely
significant, It means that there are obvious trade
exchanges between China and the host countries,
Trade plays an obvious role in driving investment;
From the regression results, For every 1% increase in
LnNDC, LnOFDI is up 0.248%, That is to say, the
more complete the financial infrastructure of ASEAN
countries along the Belt and Road, Strong willingness
to enter foreign capital, The greater the possibility;
For each 1% increase in wages in host countries,
China's investment stock will drop by 0.173%, That
is, the rise in labor costs greatly suppresses the
enthusiasm for foreign investment at the 10%
significance level. From the data, the distance
between the two countries positive foreign direct
investment, the two is basically 1.5 times positive
trend, this conclusion is inconsistent with
expectations, this may be explained by the difference
in geographical location in the transportation and
other transaction costs rise also bring customs and
human costs, and cultural costs can bring transaction
cost for foreign enterprises in a long time, which
means friendly foreign relations to establish can bring
future earnings, considering this part, can explain the
significant positive relationship between the two
countries and foreign direct investment. Moreover,
the negative correlation between the market size of
the host country and a country's direct foreign
investment decision is at the 5% significance level,
which is also inconsistent with the expected
conclusions, probably due to the insufficient range of
sample data during data collection and processing.
The analysis results show that the market size of the
host country, macroeconomic risks, financial
development level, trade freedom, labor costs, the
distance between China and the host country and the
original investment cooperation are the main
influencing factors.
Based on the above studies, although China's
OFDI has achieved more gratifying achievements, in
order to further promote the "going global" strategy
and encourage more local enterprises to actively
participate in OFDI activities, this paper puts forward
the following suggestions:
4.1 Update the Information Platform
to Help Enterprises Avoid Foreign
Investment Risks
The international economic situation is changing
rapidly, and the serious asymmetry of information
can easily lead to the inaccurate judgment of
enterprise foreign investment and ultimately lead to
the consequences of irreparable investment. In fact,
this concern is also an important factor in further
restricting the foreign investment of Chinese
enterprises. The government can continuously follow
up the political and economic situation of countries
along the Belt and Road by establishing special
websites, and detail the political and economic risk
rating and recent average investment return of
ASEAN countries, to help enterprises to reduce the
uncertainty of foreign investment, enhance
Empirical Research of Direct Investment in Countries along the "Belt and Road" based on Gravitational Models
investment willingness and facilitate enterprises to
make practical investment decisions through the
window of the website to alleviate the capital
4.2 Formulate Diversified Investment
Strategies in Combination with the
Actual Domestic Development
Considering the Asian countries with abundant
energy and labor intensive, the market is relatively
broad, combined with the current domestic
production resources shortage, environmental
deterioration, the current situation of industrial
structure imbalance, according to local conditions to
countries along the differentiated investment
strategy, through investment drive domestic
industrial transformation and upgrading at the same
time to achieve complementary advantages. When
investing in ASEAN countries, they can provide
funds, technology, talents to host countries, aiming to
help host countries extract energy quickly and
efficiently. In addition, considering the large
economic development level gap, some phased out
sunset industry is likely in other countries along the
route is facing a new turnaround, through
consultation to encourage domestic sunset industry
transfer to other developing countries, on the one
hand, the advantages of backward enterprises to
preserve, maximize concessions to emerging
industries, drive industry independent upgrading, on
the other hand also provides countries along the
economic growth new ideas, thus realizing the win-
This article is the phased achievement of the Special
Scientific Research Plan project of Shaanxi
Provincial Department of Education: Research on the
development impetus of Xi'an equipment
manufacturing industry strong city from the
perspective of military-civilian integration
(21JK0218) and the 10th accounting scientific
research and research project of Xi'an Accounting
Association: Implementation and perfection of talent
training system of production-teaching-integration
accounting specialty under the vision of intelligent
finance (21KY020)
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